Insight Focus
- Solid weekly gains for grains despite USD rally.
- Fears of lower Chinese corn demand after 5 Soybean cargoes washed out.
- Rumours of a first vessel heading to Turkey out of Odessa, Ukraine.
Nixal’s Forecast
No changes to our price forecast for 21/22 (Sep/Oct) Chicago Corn to be around 6,6 USD/bu in average for the crop.
The average price since the new crop started is running at 6,59 USD/bu.
Nixal’s Market Commentary
The return of hot and dry weather to Europe and a more positive macro environment took grains higher week on week. The rally of the dollar didn’t stop the market from making solid weekly gains. This week we have the expiry of the July futures in Chicago and the July WASDE. Expect volatility.
The week started negative with China washing out five soybean cargoes out of the US raising fears of lower demand.
US Corn condition fell another three percentual points to 64% good or excellent due to hot and dry weather and is now matching last year’s condition for this same week. French Corn condition is 84% good or excellent vs. 90% last year.
In Brazil, safrinha Corn is 28% harvested almost double the pace of last year. The USDA forecasted 120m tonnes for Brazil’s Corn production in 22/23 which is lower than the June WASDE where they estimated 126m tonnes. On the other hand, local consultancy Safras & Mercados lowered their forecast from 118,1m tonnes to 117,2. Conab maintained their forecast almost unchanged at 115,6m tonnes vs. 115,2 last month.
In the Black Sea region, Ukraine’s president asked Turkey and the UN to help secure grains exports for the 22m tonnes that remain stuck in the country. Ukraine said that figure would rise to 75m tonnes if exports continue to be blocked after harvesting. Last Friday there was a rumor of a first vessel heading to Turkey out of Odessa but we haven’t been able to confirm at the time of writing. In parallel the Ukrainian government announced a 5 bill USD infrastructure package to boost logistics, but this is work to be undertaken between 2022 and 2025, nothing for the short term.
For Russia, the USDA is forecasting 15,5m tonnes of Corn production while the average of local analysts see production closer to 20m tonnes.
In the Wheat front, Russian exports closed the year 20% lower due to higher prices through the year and the new policy of taxing exports. The disruption caused by the invasion of Ukraine has also influenced the yearly fall in exports.
US winter Wheat condition improved one point to 31% good to excellent vs. 47% last year. Winter Wheat is now 54% harvested vs. 41% last year.
French Wheat condition fell one point to 63% good to excellent vs. 74% last year. Harvesting is 14% complete.
In the weather front, hot and dry weather is expected across Europe with total absence of rains. The US is expected to see good levels of rain across the Corn belt. Brazil’s weather is forecasted dry again across the center south of the country.
Expect good volatility this week as we have the expiry of the July futures in Chicago, the July WASDE, and we continue to be in a weather market.
The latter should result in French and German crop conditions worsening which could result in a positive week for grains in Europe.
The July WASDE this week Tuesday will have the main focus on Black Sea production and trade flows. Russia’s Wheat production is a big unknown with the latest MARS bulletin and local analyst forecasting some 89m tonnes while the latest WASDE had 81m tonnes. US Corn production is expected to be higher due to higher acreage.
We think the WASDE will put pressure on prices as higher US Corn and Russian Wheat production should be published, while hot and dry weather in Europe should offset part of that downside pressure. Overall, prices should remain supported with the biggest downside risk continuing to be a safe corridor finally allowing Ukrainian exports by sea.
